Depending on your tax bracket, the incoming Liberal majority government’s policies may either cost you or save you big bucks. Here’s what you need to know

Those who earn more than $200,000 per year may have gone to bed Monday evening fretting about the new 33% federal high-income tax bracket, which is 4% higher than the previous top federal bracket. Add in provincial income tax and the top marginal rate passes 50% in half the provinces: Quebec, Nova Scotia, New Brunswick Manitoba and Ontario, according to Vancouver-based Caroline Battista, senior tax analyst for H&R Block Canada.

“For sure there’s a substantial impact for the highest 1% of earners,” said CIBC Wealth Advisory Services managing director Jamie Golombek, “If you have a high income it’s a huge setback with the extra 4% on $200,000.”

However, a silver lining is the 1.5 percentage point reduction in the middle tax brackets between $44,700 and $89,401 (from 22% federal rate to 20.5%). If you’re making $89,000 or more, you will save $670 a year from the middle-tax bracket cut. Battista estimates someone earning $220,000 a year will pay only $130 more in income tax because of these changes to tax brackets. The extra 4% tax above $200,000 would kick in only on that last $20,000, which is $800.

Note too that the Liberals promised to repeal the Conservative’s income-splitting measures, aka the Family Tax Cut. This will affect in particular families in which there is a main breadwinner in a top tax bracket, with the other one either not earning at all or in a much lower bracket.

But the real tax story goes beyond adjustments to tax bracket rates.

For the well-heeled, the huge setback is the probable repeal of the $10,000 in annual TFSA contributions, which will be ramped back to $5,500 once legislation to that effect is implemented.

Since most affluent Canadians max out their TFSAs, they will be net losers under the Liberal government. (Most maxed-out TFSAs are in the range of $35,000 to $50,000, depending how much they’ve grown since their introduction in 2009.)

That $670 tax savings from the middle bracket will be wiped out for any TFSA that’s larger than $16,750, Battista estimates, assuming TFSAs could generate 4% per annum. Since most affluent Canadians max out their TFSAs, they will be net losers under the Liberal government. (most maxed-out TFSAs are in the range of $35,000 to $50,000, depending how much they’ve grown since their introduction in 2009.)

Golombek says financial advisers are already calling him up “in a panic,” asking whether clients should withdraw the extra $4,500 people added to TFSAs after the June 23 legislation to bump the limit up to $10,000. They should not withdraw the extra amounts, he said. “We don’t know the legislation or the effective date, it’s just an election promise.”

As for contributing $10,000 on Jan. 1, 2016, he’s less certain, depending on whether the new government views it as a priority to pass draft legislation before year-end. Trudeau has said he would make his proposed tax changes a priority in the first 100 days but Battista says “parliament must be sitting for a ways and means motion to be tabled and it is not clear yet whether they will call a new Parliament before Christmas.”

The younger folk who gave the Liberals their mandate can look forward to an expanded Canada Pension Plan. I’d expect the province to shelve its plan for the oft-criticized Ontario Retirement Pension Plan or ORPP. Golombek agrees, pointing out that Ontario premier Kathleen Wynne announced weeks before the election that if the Liberals prevailed and opened the road to an expanded CPP, Ontario would put the ORPP on a backburner.

In any event, other provinces would have to provide their consent to an expanded CPP, not just Ontario, Battista says.

Voters unhappy about the phased-in hike of the age to begin receipt of Old Age Security may be heartened that the Liberals promised to move the planned postponement from age 67 back to the prior 65 which already is in place for those born before 1958.

Add it all up and I’d think some baby boomers nearing retirement might conclude it’s a good time to consider easing into semi- or full retirement. If, as financial planners often suggest, they can get by on half their working incomes, many will likely generate retirement income that comes in at that middle-income bracket of $45,000 to $89,000.

So the perverse result for some high-income people may be that they will decide they have sufficient financial independence to retire earlier than they once had planned. Not because they’ll have more after-tax income, but because they’ll simply decide it’s not worth busting a gut for those last few highly taxed dollars.

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